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Preparation of Eurogroup and Economic and Finance Ministers Council, Brussels, 9 and 10 November 2009

European Commission - MEMO/09/494   09/11/2009

Other available languages: none

MEMO/09/494

Brussels, 9 November 2009

Preparation of Eurogroup and Economic and Finance Ministers Council, Brussels, 9 and 10 November 2009

EUROGROUP (AT)

Eurogroup ministers will meet at 17.00 hrs on Monday 9 November in Brussels. Joaquín Almunia, Commissioner responsible for Economic and Monetary Affairs will attend as will European Central Bank Governor Jean-Claude Trichet. A press conference is expected to take place after the meeting. The meeting will be preceded at 14.30 hrs by the Macro-economic Dialogue with, among others, the Commission, Council, euro area President and the social partners.

Ministers will discuss the economic and financial situation. Recent months have seen a marked improvement in the economic situation and financial conditions. Confidence and the inventory cycle are advancing, while several financial indicators are now back at pre-crisis levels. The financial recovery is still fragile however: bank lending remains weak, European stock indices have retreated significantly since mid-October and benchmark government yields moved up slightly in October. The Commission's autumn forecast projects that the euro-area economy will emerge from recession in the second half of this year (although for 2009 as a whole, GDP is still set to fall by some 4%). A gradual recovery is expected thereafter, with GDP forecast to grow by ¾% in 2010 and around 1½% in 2011. The near-term rebound in economic activity follows from improvements in the external environment and financial conditions, as well as from the unprecedented fiscal and monetary actions that have been taken. Further out, a number of factors are set to restrain private demand (notably a weak labour-market) and thus, the strength of the recovery (see IP/09/1663 ).

For the latest key indicators for the euro area see also:

http://ec.europa.eu/economy_finance/publications/publication12486_en.pdf

Ministers will have an exchange of views on labour market prospects in the euro area, including on structural reforms needed for employment to increase again and unemployment to fall in the medium term. Unemployment has increased to 9.7% in September 2009, in the euro area, from less than 7% in the second quarter of 2008, the lowest level in a decade. It is set to reach close to 11% in 2011, before stabilising and starting decreasing progressively thereafter (see recent labour market developments and prospects, pp. 30-46 of autumn economic forecasts weblink ). This is due to the usual lags between improvements in the economy and their reflection in the labour market and as the economy adjusts and resources are reallocated across sectors and occupations. To prevent unemployment from becoming entrenched and for employment to rise again, Member states need to focus on the structural agenda and to resume a consistent strategy of labour market reforms, within a flexicurity context.

Flexicurity reforms are of particular importance as the recovery becomes sustainably anchored and short-term labour market measures are gradually phased out. The Commission has stressed the importance of reforms that reconcile workers' demands for protection from unemployment and income risks with the need of firms to respond quickly to swings in consumers' preferences and to the challenges and instability created by technological progress and globalisation.  An integrated strategy based on interventions in employment protection, lifelong learning and activation policies contributes to improving the adjustment capacity of the euro area and enabling the full benefits of Economic and Monetary Union to be reaped. Increasing participation and enhanced workers' employability are also needed to minimise the social consequences of the crisis, to preserve European human capital and, ultimately, to return to strong growth. Our societies will keep ageing after the recession, and, without action, the European labour force will begin to shrink. 1 The issue is of key importance for the euro area since flexible and efficient labour markets are important for adjustment of intra area imbalances which remain significant.

For recent Commission analysis on labour market and wage developments, including on policies enacted to minimise the impact of the crisis on jobs see also an October report on:

http://ec.europa.eu/economy_finance/thematic_articles/article15992_en.htm

Ministers are also expected to follow up to the G20 finance ministers meeting, Friday and Saturday of last week, in St Andrews, in Scotland. The conclusions of the meeting are available on:

http://www.g20.org/Documents/2009_communique_standrews.pdf

Following usual practice, the ministers of Germany and Portugal are expected to present the economic policy priorities following the recent elections.

ECOFIN COUNCIL

The Council of Economics and Finance Ministers will start at 10.30 hrs on Tuesday 10 November. It will be preceded by a working breakfast at 9.00 hrs. The ECOFIN meeting will be attended by Commissioner for Economic and Monetary Affairs Joaquín Almunia, Competition Commissioner Neelie Kroes and Taxation and Customs Commissioner Laszlo Kovacs. A press conference is expected to take place after the meeting.

Economic situation and market developments (AT)

Over breakfast, Ministers will discuss fiscal exit strategies in the EU and the implementation of the excessive deficit procedure, in the light of the Council conclusions of 20 October and a follow up report prepared by the Economic and Financial Committee. The Commission on Wednesday, is expected to assess whether France, Greece, Ireland, Spain and the United Kingdom have taken effective action to correct their respective budget deficits within the deadlines proposed by the Commission, in March, and agreed by the Council in April. The Commission is also expected to propose deadlines for the correction in nine other countries where the budget deficit is expected to be above 3% in 2009. The nine are: Austria, Belgium, Czech Republic, Germany, Italy, The Netherlands, Portugal, Slovakia and Slovenia (see Top News entry).

Exit strategies from support measures to the financial sector (JT)

The Council is due to hold an orientation debate on Member States' support measures to the financial sector on the basis of an issues paper from the Economic and Finance Committee. The Council is in particular due to consider three sets of principles:

(i) coordination of exit strategies and transparency towards the public and markets

(ii) timing of exit should be contingent on state of the economy and "coordination does not mean synchronisation"

(iii) phasing out should start with general guarantee schemes, and banks should be incentivised to clean up their balance sheet.

Commissioner Kroes will underline to the Council the need to be transparent and predictable in order to give markets legal certainty and time to prepare. In particular, she will propose that Member States should tell markets that there will be a coordinated phasing-out strategy and that banks should get prepared to stand on their own feet again, as soon as there is confidence that the crisis is over.

Follow-up of G-20 Finance Ministers (6-7 November) (AT)

Ministers will discuss the follow-up to the G20 Ministerial meeting, last week, in St. Andrews. The main outcome of St Andrews was the launch of the G20 framework for growth, a process in which G20 members will assess how their policies fit together and evaluate whether they are collectively consistent with the agreed objectives of strong, sustainable and balanced growth. Ecofin Ministers agreed that the G20 will have to take into account the institutional policy set-up of the EU and the euro area. The EU will provide a separate contribution to the framework.

The G20 also agreed on high-level principles for exit strategies: the need to continue to provide support until the recovery is secured; the need to reflect country-specific circumstances and vary between types of policy measures; and that fiscal strategies should be transparent, comprehensive and communicated clearly now; exit strategies should also take into account spillovers of exit plans on other countries. The G20 agreed that the timing of exits should depend on the state of the economy and the financial system. The EU strongly stressed the need to take into account sustainability, which was taken up at St Andrews.

The discussion on climate change finance continued to highlight differences/divergences among advanced countries and emerging and developing countries in the run-up to Copenhagen. A successful outcome of Copenhagen is a key priority of the EU.

Sustainability of public finances (AT)

Ministers are expected to endorse the conclusions of the recent Commission communication and associated report on ' Long-term Sustainability of Public Finances for a recovering economy ' (see IP/09/1510 ). The Communication shows that the discretionary measures and in-built fiscal stimuli adopted by Member States have had the effect of cushioning the downturn in economic activity and have been a factor in the recent economic improvement. However, this has also led to a deterioration in government accounts which, coming on top of the projected demographic developments as populations age, makes the long-term sustainability of public finances an acute challenge. The communication underlines the need to return to sustainable fiscal positions and to pursue the three-pronged strategy agreed at the 2001 European Council. The strategy consists of deficit and debt reduction, increases in employment rates and reforms of pension and social protection systems. The Communication and Report with debt projections are based on a technical no policy change assumption .

Taxation (TvL)

  • Administrative cooperation in the field of taxation

The Presidency will try to get agreement on a general approach on the proposal for a Directive on administrative cooperation in the field of taxation.

The Commission presented on 2 February 2009 a proposal for a Council Directive on administrative cooperation in the field of taxation, especially as regards direct taxation (see IP/09/201 ).

The proposal aims at entirely replacing the existing EU legislation on mutual assistance, which dates back to 1977, with a new Directive which would give Member States the power to cooperate more efficiently. It aims at reinforcing all types of administrative cooperation, especially automatic exchange of information, and eliminating bank secrecy which could be an obstacle to properly assessing the taxes due.

  • Rates of excise duty applied on manufactured tobacco

The Presidency will try to reach political agreement on the proposal for a Council Directive amending Directives 92/79/EEC, 92/80/EEC and 95/59/EC on the structure and rates of excise duty applied on manufactured tobacco.

In July 2008, the European Commission presented a report and a proposal for a Directive to amend the current EU legislation on excise duty on tobacco products (see IP/08/1149 ). The proposal aims to narrow the differences between Member States' tobacco taxation levels thus helping to reduce cross-border shopping and to tackle tobacco smuggling. The proposed gradual increase in the EU minimum taxation levels on cigarettes and fine cut tobacco will, in addition, contribute to reducing tobacco consumption by 10% within the next 5 years.

1 :

See EC-EPC "2009 Ageing Report", European Commission European Economy, No 2, May 2009.


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